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Originally published October 6, 2012 at 8:04 PM | Page modified October 8, 2012 at 3:16 PM

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Pot dispensaries clouding medical marijuana's image

Medical marijuana started as a grass-roots movement among AIDS patients and still caters to medical patients, but increasingly it's also turned into a party.

Seattle Times staff reporters

Medical Use of Cannabis Act

Under current law, medical professionals can authorize use for certain conditions. Patients can have a 60-day supply of 24 ounces and 15 plants. The law does not protect patients from arrest, but provides a defense. Dispensaries are not legal, but operate as hubs for 10-patient collective gardens.

Initiative 502, on the Nov. 6 ballot

Would legalize marijuana sales for recreational use — up to 1 ounce for people 21 and older. Medical-marijuana law would not change. Only state-licensed stores could sell; no homegrows. Some of the 25 percent excise tax would go to marijuana research, prevention efforts and a state health-care fund. New DUI provision for marijuana impairment.

Medical marijuana: A growing business

MARK NOWLIN/ THE SEATTLE TIMES

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Join reporters Jonathan Martin and Maureen O'Hagan for an online chat noon Tuesday. Send questions in advance to jmartin@seattletimes.com or mohagan@seattletimes.com.

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Three weeks ago, an event space in Fremont hosted an unusual trade show.

A legal panel debated public policy and a doctor discussed the state of health care as girls in bikinis posed near tables of bongs and a guy in a green bear suit offered free hits off a 5-foot pipe.

And the smell of marijuana wafted over the Ship Canal.

Seattle's first-ever Medical Cannabis Cup — part gourmet weed contest, part trade show, part smoke-in — showcased the entrepreneurial drive and explosive growth of the local medical-marijuana industry.

From dispensaries offering dozens of marijuana varieties to new potency-testing labs to makers of cannabis-infused capsules and candy corn, storefronts displaying the trademark green cross dot nearly every Seattle neighborhood. The city estimates there are at least 150 marijuana-related businesses here, more ubiquitous than Starbucks. Elsewhere in Washington, business may not be as out in the open, but it's still chugging along.

"We're at the infancy of a new industry," said Dan Skye, editorial director at High Times magazine, which put on the Cannabis Cup. "Everybody's trying to get their foundations.

But just as quickly as this quasi-legal industry has grown, it is at a crossroads.

With virtually no state regulation, hustlers threaten to stain what began as a grass-roots patient-care movement. Federal authorities continue to enforce the prohibition against marijuana, with recent warnings to dispensaries and a handful of prosecutions.

And, as voters consider a ballot measure to legalize recreational marijuana use, it's clear that, under the guise of medicine, the party has already started, particularly in Seattle.

Leaders in the medical-marijuana industry are pushing for more regulation from Olympia. In the interim, they're working to police themselves, including writing their own ethics guidelines. Some even pay taxes.

"I would like our industry to appear more grown up," said John Davis, owner of a West Seattle dispensary. "But I understand that's not the way it is right now."

Now, some say it's more like the Wild West.

Quest for customers

What goes on behind all those green crosses?

Unquestionably, some dispensaries are run by people with an earnest desire to ease suffering from cancer, epilepsy and other ailments.

Others seem more focused on the scramble for market share.

Medical-marijuana businesses run raffles on Facebook and give free joints to early birds. They offer customer-loyalty programs and delivery service, and sometimes stay open until 3 a.m. An ad for one business features a woman in a wet T-shirt and panties.

Ostensibly, their customers aren't getting high; they're medicating. They attend DJ-fueled shindigs, including one with a "medicated chocolate fountain," and another that promised to "make medical history" in a party boat at Seafair.

Meanwhile, a Black Diamond woman is turning her property, an ornamental horticulture nursery until the economy went bust, into a venue for "420 weddings." (420 is a euphemism for marijuana.)

Today, at least four Washington magazines are devoted to medical marijuana, including Northwest Leaf and Dope. Ads sell for $1,200 or more per page.

Marijuana as medicine has grown more sophisticated, too, as strains have become prized for certain properties. Some are known for easing pain; others for relieving nausea; still others for, well, what you might expect.

"Like a revelatory hit of God's own candy," says one review of a particular strain, "cherry-sweet to the nose and tongue, a lemony clean and smooth aftertaste and a colossal stone. ... it blindsides you, but in a happy-good way."

It's worth noting that almost none of this, with the exception of publishing a magazine, is truly legal.

Not exactly as promised

It's certainly not what advocates pitched in 1998, when Washington voters passed one of the nation's first medical-marijuana laws.

Dale Rogers got involved in 1991, working at a San Francisco AIDS clinic, where a "little old lady" would bake pot brownies for patients.

"You have to understand, at that time we had 20 people dying a week," said Rogers, who would later work on the 1998 campaign. "It wasn't a party. It wasn't fun. It was medicine, and it was survival."

So how did Washington go from AIDS and cancer to party cruises? Very slowly.

For the first decade after voters approved medical marijuana, small numbers of patients found their medicine through word-of-mouth. This has to do with the strange nature of the law.

The 1998 initiative didn't legalize marijuana. Instead, it gave authorized patients a defense if charged in state court. Possession or sale remains illegal under federal law, but the feds usually get involved only in big cases.

Rogers says a turning point came in 2010, after the Legislature allowed more medical professionals, including naturopaths and physician assistants, to write marijuana authorizations. That led to the growth of what some call "authorization mills." Walk into one of these clinics complaining of pain, and $100 or $200 later you'll likely walk out with a doctor's recommendation allowing you to get "medicine."

"Being able to buy your authorization, that changed the landscape," Rogers said. "This is no longer in good faith." What he sees are "shenanigans."

In 2011, the Legislature tried to regulate the industry, much as in other states. Gov. Chris Gregoire vetoed most of the bill, but left a provision that inadvertently became the underpinning of the industry.

It lets 10 patients together grow as many as 45 plants. It was the first time "collective gardens" were explicitly legal.

Now dispensaries characterize themselves as "access points" for a network of collective gardens tended by expert growers. Customers walk into a dispensary and enroll as one of a garden's 10 patients. After getting their cannabis, they drop their enrollment until the next visit.

With an expanded pool of patients, plus some legal cover for dispensaries, medical marijuana began to look like a business opportunity.

Ben Reagan, for instance, used his severance from being laid off as a computer tech at WaMu to open a dispensary with a friend, Jeremy Kaufman. People who left the mortgage industry and real estate have entered the fray, as have underemployed construction workers and former Microsofties.

The business model hinges, however, on local prosecutors' attitudes toward the murky law. King County Prosecutor Dan Satterberg hasn't cracked down on dispensaries. In other counties, like Spokane, dispensaries were threatened with prosecution and dived underground or closed.

Overall, of the 17 states and the District of Columbia that allow medical marijuana, Washington is one of the least regulated. It's harder to open a nail salon.

This is the only medical-marijuana state without a centralized patient registry, a frustration for police. There are no rules for location, security or access, except a few imposed by cities.

Without such regulation, said Ian Goodhew, Satterberg's chief of staff, "It makes it more difficult for law enforcement to separate out who's doing it for medical purposes and who's doing it for profit purposes.

"And not so shockingly, a lot of times it's a mixture of both."

Inside the dispensaries

Drive down Seattle's Rainier Avenue South and you'll see the green crosses, one after another. Some dispensaries are clean and well-lit. Others are dingy, with homemade signs out front.

The people behind the counter often don't fit the image of a pharmacist who can answer questions for an elderly cancer patient. On a recent visit, one "budtender" looked barely 20.

"We have the best stuff," a clerk at another dispensary explained. "You won't be disappointed."

A third, which bills itself as the "home of gourmedibles," runs customers through a metal detector.

At a fourth, a skinny young man who looked like a teenager was buzzed into the marijuana room. (Absent regulation, there is no age limit.) He walked out about a minute later, bag in hand.

Who runs these places?

The city has issued business licenses to about 130 people associated with medical marijuana.

Of those, The Seattle Times had enough information to run background checks on 96 and found that 18 — nearly one in five — have histories of felony charges in the state, often for drug-related crimes.

Kristian Wheelwright, for example, was charged in August with assaulting two cops. The officers had been escorting a Seattle City Light worker to check the meter at the dispensary Wheelwright still runs, called Plump.

Lance Gloor, who at one time helped run a chain of four dispensaries, had a history of drug charges, as well as an unlawful-imprisonment charge, before getting involved with medical marijuana.

Last year, he posted a picture of three duffel bags of cash on Facebook. "This gonna take all night to count ... lol," he wrote.

The Drug Enforcement Administration (DEA) found more than $850,000 flowing through his company's bank accounts in one month in 2011. He faces state drug charges.

Gloor said he couldn't comment on the case, but wanted to talk about food and clothing drives at his Lacey dispensary.

"My job is to help (people)," he said.

Some in the industry have tangled business histories.

Before getting into the dispensary business, Adam Greenhalgh was sued seven times for his work in the mortgage industry. Amid complaints, he canceled his state license in 2008.

One bank chased him into bankruptcy, seeking to seize a $375,000 home. While its sale was pending, Greenhalgh was seen stripping the home of its sinks and toilets. Its cabinets, wiring and downspouts vanished, too, according to bankruptcy records.

Emiel Kandi, who runs a Tacoma dispensary, was the subject of a Seattle Times investigation into unscrupulous lending. In one case, he charged 45 percent interest.

Said Greta Carter, who runs a Seattle authorization clinic, "Entry level to get into the cannabis industry is low."

A different philosophy

"There are two ways to play this game," said Davis, who runs a for-profit dispensary, Northwest Patient Resource Center. "Completely invisible, with no records. And completely aboveboard, and you are spotless."

Davis' storefront is bright, with comfortable chairs and a clean restroom. It looks vaguely like a pharmacy or a bank, with bulletproof glass separating the cashier and product from the customer.

"They can access their meds in a way that doesn't feel sketchy," he explained.

He says he runs it like any other business.

Davis, along with Kaufman, Carter and others, is part of a movement to legitimize the medical-marijuana industry. He has employees and an accountant, and welcomes police and fire inspectors. He pays his suppliers with checks. He records his sales on Microsoft Dynamics.

Kaufman calls it "going pro." It means spending money on infrastructure. Registering with the city and state. Paying state and federal taxes.

About 50 medical-marijuana businesses statewide — a minority — paid a total of $756,000 in taxes last year, according to the state Department of Revenue (DOR). They reported gross income ranging from $500 to $2.25 million, with a median of $82,410. Their total reported gross was $11.5 million.

"I pay sales tax, payroll, B&O," Kaufman said. "I don't have to pay any frickin' taxes. What I'm doing is illegal. I want to pay."

Actually, Kaufman may not be paying his full share. He doesn't charge sales tax on marijuana, reasoning it should be treated like a prescription drug.

DOR, meanwhile, insists even illegal businesses have to cough up, and it has begun auditing those that don't.

Turns out most dispensaries aren't paying anything. Many in the medical-marijuana business have been advised by their lawyers that paying sales tax is evidence of a federal crime: selling cannabis.

Davis thinks this is disingenuous.

"I say to them, 'The thing is, you sell cannabis,' " he said. "If the DEA wanted me, my doors are unlocked. There is cannabis on my counter."

Kaufman has tried to convince some of his colleagues. "They give you the finger."

In the absence of clear state rules, Davis, Carter and others helped create the Coalition for Cannabis Standards and Ethics. They've developed a list of voluntary standards; those who meet them get a stamp of approval — sort of like the seal from the Better Business Bureau. But they believe government regulation is crucial, as well.

"The problem is that you cannot get all of the businesses to voluntarily do things right," Davis said.

Marijuana on ballot

In some ways, we are at a unique point in the evolution of medical marijuana.

In November, voters will consider Initiative 502, which would regulate the recreational use of marijuana. It calls for licensed pot stores and a heavy tax. How passage of the measure would affect dispensaries is unclear.

Many in the medical-marijuana industry oppose the initiative, saying patients could pay more in taxes for marijuana and could be ensnared by a new driving-while-stoned provision in the measure.

Some in the business envision parallel tracks, one recreational, one medical, should I-502 pass.

Alison Holcomb, campaign manager for I-502, predicts some dispensaries would convert to state-licensed stores.

Or the Legislature could see the potential tax windfall — estimated at up to $560 million a year, — and seek to channel users away from the unregulated, untaxed dispensary market. Of course, the Justice Department could block I-502 from being enacted, and federal law enforcement continues to be hostile to dispensaries.

Regardless of the outcome, more regulation appears inevitable. Two champions of medical marijuana, state Sen. Jeanne Kohl-Welles and Rep. Roger Goodman, hope to reintroduce comprehensive oversight in January.

"I do believe we need to overregulate, and if it's clear the sky is not falling, we can be more permissive over time," said Goodman.

In the meantime, Davis and others say they'll deal with the chaos.

"This is a moment in history," he said. "This isn't going to seem dangerous 10 years from now. As odd and hard as it is, this is history.

"And might I go to fed prison? God, I hope not."

Staff reporter Justin Mayo and news researchers Gene Balk and Miyoko Wolf contributed. Jonathan Martin: 206-464-2605 or jmartin@seattletimes.com. Maureen O'Hagan: 206-464-2562 or mohagan@seattletimes.com

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